There's a loud ruckus, a crowd gathers 'round, and a customer is sprawled on the floor next to the soft drink dispenser. The area is covered in soda and ice and the customer laments she slipped, fell, and is injured because of your negligence.
It's a franchisee's worst nightmare... but it never really happened. It wasn't a bad dream, it was a customer scam. And thanks to sophisticated video surveillance technology, it was all captured on camera and could be proven a fraud before any claims even began.
That's the movement in loss prevention strategies and techniques today, according to Rollie Trayte, vice president of strategic development for Westec Interactive, a Dallas-based company that supplies technology and security tools to more than 400 franchise clients in the U.S.
"That kind of scenario happens all the time," says Trayte. "Believe it or not, there are actually organized groups of people who go around the country staging slips and falls to elicit quick settlements from store operators." We live in litigious times.
Digital video surveillance is one of the key weapons in the loss prevention battle that has emerged over the past decade, says Trayte. "There's been a real evolution in this area that's gone from bulky videotapes that would sometimes not get loaded or changed, to 24/7 digital surveillance that is captured on a computer hard drive." And that's not all: the footage can be accessed remotely on a laptop or any other computer at any time by the franchisee or a designated viewer.
That's just what Vimal Kolappa does. Based in North Carolina, this multiunit, multi-brand operator has two Bojangles' restaurants (out of state) and a dozen hotels including the Holiday Inn, Hampton Inn, and Comfort Inn brands. And he has cameras strategically installed in every location.
"The whole place is surrounded by cameras," he says. "It's been a great investment for us and we can document everything that's going on." His Bojangles' stores have been robbed before, and Kolappa says he simply turned over the footage (which can be easily burned to a DVD or CD) and the police were able to quickly identify and apprehend the offenders. Since installing the cameras, Kolappa has had far fewer problems with outside crime.
Scott Waters knows a little something about being a victim of crime. He operates KFCs and Taco Bells in New York, three on Long Island and two in Brooklyn. "We had an armed robbery not long after I purchased the KFCs," he says. "It became, for me, not only an issue of security, but employee safety."
He installed a video surveillance system about three years ago. Cameras are located in strategic places such as the drive-thru, front counter and cash register, and inside the dining area. "I can see everybody who comes and goes from my stores."
And he watches. Waters says he carries a laptop with him and views the restaurants several times each week. His security company also monitors randomly for him. One of his cameras is at the rear of the store, and that's come in handy. "I've logged in before and found the back door not closed," he says. "I just phoned up the store and told them to get the door closed."
Waters wisely advises, "If your store becomes a victim once, word gets out on the street and you're going to be hit again."
Greg Cutchall is president and CEO of Cutchall Management, which oversees seven Sonic Drive-Ins, seven Famous Dave's, three Tin Stars, three Paradise Bakeries, and one Burger Star. His company is based in Omaha, but his franchises are spread across four states.
"Years ago, security cameras were a luxury," he says. "But today they are a necessity. We have them in all of our stores." He says it's part of his store managers' jobs to keep an eye on what's being captured by the cameras.
The cameras are great tools for multiunit operators like Volappa and Cutchall who have units in other states. Just a couple of keystrokes on a computer can put them instantly "inside" any of their stores.
Of course, catching external theft on camera is just one of the functions of this emerging security technology. The cameras also can alert franchise operators and managers to what's happening on the inside.
"Employee theft is certainly a part of what business owners want to keep an eye on," says Trayte. "Employees of all ages—not just teens—have been known to give their friends extra food or food that's not been paid for when they come by the restaurant." He says between 40 and 70 percent of losses can be attributable to employees.
"Think about it: a manager who is only earning $40,000 per year is going to be awfully tempted by a store that's generating thousands per day, much of it in cash," says Trayte.
"The cameras have been a great deterrent for us," says Kolappa. "Our employees know they're being monitored—and they know that we are watching." He says the system is fully explained as part of the new employee training process, and that it makes a great management tool.
Waters concurs. "Our cost controls definitely improved after we added the cameras. The employees know that we could be watching, which makes internal theft or pilfering more difficult." Interestingly, Waters says that after a while the cameras become part of everyday business, and employees sometimes forget they can be watched from afar. "But if someone makes a mistake, we capture it," he says.
In most cases, if dollars come up missing from the register, it's easy to backtrack the video to the shift and employees in question. Some systems go even further.
Cutchall recently sold 12 Popeyes restaurants that had been part of his operation. Inside each of those locations was a POS system linked to the video surveillance system. "We could capture on camera exactly what was going on with each transaction at the register," he says. "In the bottom left part of the screen the video showed the amounts of the transactions."
This is a great way to use the technology, says Trayte.
Kolappa also uses his cameras to keep an eye on the cleanliness of his restaurants, the condition of the external landscaping, and the quality of customer service his employees provide.
There is a positive side to all this "Big Brother" style monitoring. This involves giving employees recognition and accolades for a job well done. "Absolutely," says Cutchall. "We use our cameras to recognize good behavior. And again, it's reinforcing the fact that 'Hey, the owner is watching.'"
Trayte says franchisees should think of video surveillance technology as a tool for auditing their operations and other customer service-related metrics to ensure the operation is at its best. "When you can conduct operational audits of the store—using the same equipment to audit whether the employees are in uniform, the drawer is closed between transactions, whether there's trash blowing in the parking lot, or if customers are being issued receipts—then you're able to multitask capital, and the technology has use beyond just security."
As Trayte has described, fraudulent claims of slips, falls, and injuries are out there and have been on the rise (see sidebar). Video surveillance can, literally, save a business.
"Yes, we've had staged accidents in our parking lots," says Kolappa. "We've had people claim damage to their cars, or that someone broke in and stole a computer from the car. But we have footage to the contrary."
Waters says he's had at least two circumstances in which customers claimed they slipped and fell inside the store. "But when we told them we had 24/7 video surveillance of the entire place, they quickly disappeared, not to be heard from again."
Adds Cutchall, "We even have a case now with a disgruntled employee who claims she was injured on the job. But we have the footage to prove that's not the case."
Trayte says it's not uncommon for employees to claim a lower back strain or sprain from lifting in the cooler, for example, either to simply get time off work or to get paid to stay at home. In some cases, he says, they've injured themselves in an incident not related to work (baseball, working in the garage, etc.) and are unable to do their job. They also may not have health insurance. Trayte says if employees can make it look like a work-related injury, they will get medical coverage for free, maybe even paid time off.
It's easy to see why video cameras can reduce insurance premiums for franchise owners. "I've experienced this," says Kolappa. "When losses are minimized, premiums are lower."
Video surveillance systems vary in cost depending on the individual setup, size and scope of the store, type of equipment, number of cameras, and other factors. Generally, five to six cameras can be installed in a store for anywhere from $4,000 to as much as $12,000. Additional and ongoing maintenance issues can cost more. Most systems will store the captured footage from a couple of weeks to a month or longer.
"Your risk should dictate your investment level in this technology," says Trayte, who firmly believes that "planning for loss prevention should be a core part of your business strategy."
In the end, Waters says, "Security measures are critically important. You just can't put a price tag on the safety of the people who work for you."
Although video surveillance is a great security tool, multiunit franchise operators should still continue to adhere to tried-and-true methods.
Written and enforced security policies should be in place at all times: things as simple as keeping back doors locked, or keeping areas clean and uncluttered with lines of view open throughout the store. Employees should never be left alone in the stores; nor should they walk to their cars alone at night. Most franchises have these kinds of policies in place. The key is to review them, use them, and make sure employees are following them.
"We meet with our store managers regularly and review security policies," says KFC and Taco Bell franchisee Scott Waters. "Especially around holidays or other busy times when we all need to keep a sharp eye out."
Alarm systems may be "old school," but they still have value. "They're just a few hundred dollars to install and very little in expense to monitor each month," says multi-brand franchisee Greg Cutchall. Alarms are not only good for the security of employees, they also can monitor who enters and leaves the unit. "Alarm systems are a comfort to the manager who goes into the store early in the morning and can be sure he is alone."
If there is a lot of cash in the store, arrange to remove it regularly. Waters has his managers make at least two daily bank runs and keeps onsite cash in time-delayed safes. He's even installed some bulletproof glass at some of his locations.
Trayte encourages franchisees to not only invest in a good onsite safe, but to consider an armored car service to remove cash on a regular basis.
Although there is no foolproof way to know if you're hiring a problem, there are several key steps to follow and indicators to watch for at the hiring and training stages.
Begin with more extensive background checks and hiring policies. Says Cutchall, "We're doing more background checks then ever before. We use a third-party company to screen for us." He says employees understand up front that for any on-the-job injuries to be covered by insurance, employees must be drug-tested. "And we reserve the right to drug-test any of our employees," he says.
Waters says his operation doesn't conduct drug tests or use a third-party screener. Instead, he relies on creating "a culture of trust" that quickly weeds out bad employees. Further, all cash handling policies and procedures, as well as all other security-related issues, are reviewed with every employee during initial hiring. "All new employees must sign off on this," he says.
Statistics from the National Restaurant Association on the costs of employee and customer malfeasance show what franchisees are up against every day:
According to a National Retail Federation annual study conducted by the University of Florida, retail losses hit $41.6 billion, 1.6 percent of all retail sales in 2006. The losses break down as follows:
The video surveillance market is poised for astronomical growth, according to ABI Research, which studies technology's effects on business. The company forecasts revenue in this sector to expand from $13.5 billion in 2006 to more than $46 billion by 2013.
"We're at a key inflection point in the diverse video surveillance market, because we're moving from an analog-based industry to a digital one," says Stan Schatt, the company's vice president and research director. "A rising tide lifts all boats: the result is a multitude of opportunities for vendors." And for franchisees, an increasingly valuable tool for security, employee management, and more (see main story).
Video surveillance is finding a home across markets as diverse as retail, education, banking, transportation, and corporate business. And new technology continually improves its capabilities. For instance, new systems can use facial recognition software that analyzes shoppers' behavior inside the store, such as tracking eyeball movements as shoppers look over product displays.
At its core, digital video surveillance is coming on strong because it offers higher resolution, easier searching and retrieval, and more efficient storage than the analog technology of the past, says Schatt.
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